Tuesday, October 25, 2016

Another Foreign Airline Gets an Assist From JetBlue Airways Corporation

JetBlue wants the federal government to make it easier for foreign carriers to expand in the U.S., in order to smooth the way for JetBlue's own future international growth.

Foreign airlines have a friend in JetBlue Airways.In recent years, the biggest U.S. airlines -- led by Delta Air Lines -- have urged the federal government to crack down on foreign carriers that they think are competing unfairly.

Their main targets have been fast-growing Middle Eastern airlines Emirates, Qatar Airways, and Etihad Airways, along with European budget carrier Norwegian Air Shuttle.

However, JetBlue has reliably defended foreign airlines' efforts to grow in the U.S. This time around, the beneficiary is Norwegian Air International, the Irish subsidiary of Norwegian Air Shuttle.

JetBlue defends the Middle Eastern airline giants

One of the legacy carriers' biggest campaigns in recent years has been an effort to stop Emirates, Etihad, and Qatar Airways from continuing their rapid U.S. expansion. Delta and its peers have formed a lobbying group called the Partnership for Open and Fair Skies to advance their claim that all three Gulf carriers benefit from unfair government subsidies.

There's pretty good evidence that Etihad Airways and Qatar Airways really are government-subsidized enterprises that couldn't possibly stand on their own. (Emirates isn't very profitable, either, but it does seem like a viable business.) Yet JetBlue has publicly supported the right of all three airlines to keep adding flights to the U.S.

Norwegian Air needs a friend

Delta and the other legacy carriers, supported wholeheartedly by their unions, have also attacked Norwegian Air for competing unfairly. Norwegian is headquartered in Norway, but it has established long-haul subsidiaries in Ireland and the U.K. The legacy carriers claim that these "flags of convenience" are designed to skirt local labor laws and unfairly undercut U.S. airlines on routes to Europe.

This contention seems dubious, given that Norwegian's Norway-based airline already manages to underprice U.S. airlines dramatically on transatlantic flights. Adding subsidiaries in the U.K. and Ireland would mainly help for serving other global markets and operating more efficiently.

In any case, Norwegian's Irish subsidiary (known as Norwegian Air International) still hasn't received final approval to fly to the U.S., despite filing its application more than two years ago. Complaints from the legacy carriers and their unions have been a major cause of the delay.

Last week, JetBlue took Norwegian Air International's side -- sort of. JetBlue's general counsel wrote a letter to the head of the DOT "to raise JetBlue Airways' concern with the time that the Department of Transportation has allowed the application of Norwegian Air International (NAI) to remain open."

JetBlue stated that it had no official position on the merits of Norwegian's application. However, the letter made it clear that JetBlue sees no reason to block the Irish subsidiary from flying to the U.S.

Two very different cases

It wasn't very surprising to see JetBlue side with Emirates, Etihad, and Qatar Airways over its U.S. rivals like Delta and United Continental. After all, all three carriers are JetBlue partners and exchange connecting traffic with JetBlue through codeshare and interline agreements. Thus, JetBlue has a vested interest in seeing them continue to grow.

By contrast, JetBlue has no business relationship with Norwegian Air. And while the European budget carrier flies from key JetBlue markets like New York, Boston, and Fort Lauderdale to several cities in Europe, it's doubtful that many fliers connect between JetBlue and Norwegian.

The reason for JetBlue's intense interest in this case is that it is considering beginning flights to Europe a few years from now. If U.S. regulators continue to drag their feet about approving a European airline for transatlantic flights, European regulators could do the same when JetBlue or another U.S. carrier applies to fly to Europe. (Indeed, the U.S.-EU Open Skies agreement allows for retaliation if one side violates the treaty.)

Thus, JetBlue does have some potential financial interest in the outcome it is advocating. But it is worth noting that if JetBlue ends up expanding to Europe, it will have to overcome low-cost competition from Norwegian Air just as much as any other U.S. airline.

This highlights how JetBlue is in a dramatically different stage of its life cycle compared to the legacy carriers. For an airline like Delta, the urge to support protectionism in order to avoid foreign competition outweighs the risk of having barriers thrown up that impede its own growth. JetBlue is far smaller and has enormous expansion opportunities ahead of it. As a result, it remains firmly on the side of tearing down barriers to free competition.

(Adam Levine-Weinberg - The Motley Fool)

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